Expense Or Improvement
I have to put in a new sewer line in my rental property. It will cost $10,000. Can I expense this or will this be considered an improvement?
I would think it would be an expense since it will not make the property worth any more.
If you've got a renter in there, or if it's eligible for renting, it's expensed.
your crazy. Your replacing the sewer line. That is an improvement that should be capitalized and amortized over a number of years. How many years are you benefited by that sewer Line? Not just this one...check the IRS pubs or call a tax accountant, but expensing that would be troulbe, IMHO.
Well, I'm NOT a tax expert, by NO means, and before I'd claim either, I'd run it by my CPA come tax season.
However, he didn't add a sewer line, he repaired one by replacement, albeit an expensive repair, so in my opinion it should be expensed in the year it was repaired.
I wouldn't give advice on something you have no idea on...I'm not trying to be mean, but your completely wrong. So what do you do when an air conditioning unit goes out? Or you replace a drive? Or you reshingle a roof? Expense in the current year? Remodel a bathroom? Remodel a kitchen?
Quote:I have to put in a new sewer line in my rental property. It will cost $10,000. Can I expense this or will this be considered an improvement? jspaeth,
Consider a different major system -- the roof. If you repair a few shingles to stop a leak, you have an expense. If you replace the roof with a new one, you have a capital improvement.
Same analogy applies to your sewer line. You are not repairing the existing line, you are replacing it. It will be a capital improvement.
Well, I am actually relining the existing line (with new pipe). I am fixing it because it does not work well. From what I gather, it sounds like there is no right or wrong answer...just how you interpret the rules and how you measure the work being done.
Another example: I just replaced half the sidewalk...I consider this a repair since I did not replace the entire sidewalk (only fixed what needed fixing)...but I can see the argument on the other side as well.
I'm just curious why it will cost so much to replace? Is it an especially long line, or some kind of complicated tie in?
[addsig]
Well, I am actually relining the existing line (with new pipe). I am fixing it because it does not work well. From what I gather, it sounds like there is no right or wrong answer...just how you interpret the rules and how you measure the work being done.
Another example: I just replaced half the sidewalk...I consider this a repair since I did not replace the entire sidewalk (only fixed what needed fixing)...but I can see the argument on the other side as well.
The IRS has publications that have actual examples and dollar amounts that must be capitalized...like replacing that sidewalk, I about guarantee thats a capital improvement. $10,000, that is a capital improvement. Its not even close.
I remember appraising this larger apartment complex one time, they had something like $20,000 in "garage door repairs" for abunch of garage door replacements...however, their accountant let me do it because he said that each individual "repair" was under $500 and therefore within the IRS pubs and regs...
That was pretty aggressive, and they thought they'd get called on it...
Just because something isn't "replaced" doesn't mean its not a capital improvement. For example, putting another layer of shingles on a roof isn't a "repair" its a capital improvement because you will receive the benefit from it over several years. The IRS doesn't make you capitalize small improvements (the less than $500 deal) because they are considered "de minimus" and its not worth the effort to account for them...
I've personally never read the $500 or less can be expensed rule/reg/pub, its just what this company used as a heuristic...I don't know where they got it from...I hope i make myself clear...
SavvyYoungster - It is a long line and what has happened is it has kinked where it runs under a tar alleyway...the alley way portion will have to be dug out It went from a $4000 job to a $10000 job once they found out about the alley issue.
Rmdane2000 - I am going to have to do some more reading on this. I don't want to take any chances with the IRS yet I want as much expensed as possible. Thanks for all the info and insights.
jspaeth,
With the additional detail you provided, I agree with blueford that you have options. If you want to be aggressive, take a repair expense.
I hope you understand that because your first post said you were "installing a new" sewer line, we all started down the capital improvement path.
I found examples of expense vs. improvement in the IRS 527 Publication. However, I did not find dollar amount examples, as one of the posters mentioned. Anyone know where they are at?
I am still strugling with this. I believe the sewer is a repair, even though it is near $10000 since we are only relineing what is needed. And, the concrete side walk work cost an additional $4000. The IRS has listed this is an example of an improvement, but I still think I can argue that it is an expense for two reasons: we replaced it exactly as it was and we only replaced the sections that needed replacing (about half of it). Now, if we had added a sidewalk where one did not exist or if we had replace the whole thing...it would naturally be an improvement. Comments?
I think you're looking for an answer to the wrong question. Based on what I posted above, the IRS would consider a $14,000 expense that lasts more than a year as an improvement to be capitalized. (Technically there are no minimum dollar amounts.)
So, the question is not whether it's a current expense but what are the chances that you will be audited and if you are, do you want to fight them on this issue. To determine your chances of success you would need to research (or have an accountant research) the case law applicable to your jurisdiction. After that, if you think you have a strong case, then go for it.
I would not rely on IRS publications or an even an accountant's opinion (not supported by case law) since neither will help you under audit. Unfortunately, you may pay an accountant as much as it would save you in taxes to get a good answer.